Leucadia’s Handler Doubles Bet on Falcone’s Company

Philip Falcone, chairman and chief executive officer of Harbinger Group Inc. Falcone is focused on building his publicly traded Harbinger Group after reaching a settlement with U.S. regulators that bars him from the hedge-fund industry. Photographer: Jacob Kepler/Bloomberg

March 19 (Bloomberg) -- Richard Handler’s Leucadia National
Corp. more than doubled its bet on Philip Falcone’s Harbinger
Group Inc. after the value of an earlier investment jumped.

Leucadia agreed to buy 23 million preferred securities from
Falcone’s hedge funds for $253 million, the firms said
yesterday. That adds to Leucadia’s purchase last year of common
stock that jumped more than 50 percent in value to $244 million
by yesterday’s close. Harbinger Group owns businesses from
consumer goods to insurance.

Falcone, 51, is focused on building his publicly traded
Harbinger Group after reaching a settlement with U.S. regulators
that bars him from the hedge-fund industry. His Harbinger
Capital Partners hedge funds are working to meet redemption
requests as part of the August accord with the Securities and
Exchange Commission.

Falcone said in the statement that he’s pleased with the
investment and called the two firms “a great fit.”

The preferred securities are convertible to common stock in
Harbinger Group provided the deal is approved by insurance
regulators, Leucadia said in a filing. Once the new stake
converts to stock, Leucadia’s average cost per share for its
holding would be 25 percent below Harbinger Group’s $13.07
closing price yesterday.

Assuming certain other securities also are converted,
Leucadia will hold a 20 percent stake, according to the filing.
The firm pledged not to amass more than 27.5 percent of the
voting rights for two years without Harbinger Group’s approval.

‘Unique Relationship’

Leucadia agreed in 2012 to buy Jefferies Group LLC in a
$3.2 billion deal that made 52-year-old Handler, who was running
the investment bank, chief executive officer of the combined
company. New York-based Leucadia’s other businesses include a
beef processor, a timber company and a commercial-mortgage joint
venture with Warren Buffett’s Berkshire Hathaway Inc.

As part of yesterday’s agreement, Leucadia Chairman Joseph
Steinberg and Vice Chairman Andrew Whittaker are expected to
join Harbinger Group’s board, according to the statement.
Whittaker oversaw the initial investment, Handler and Leucadia
President Brian Friedman wrote in a letter to shareholders
posted last month.

The stake “is a classic example of how a unique
relationship and extensive existing knowledge can lead to an
appealing entry point in a public holding company at a price we
find attractive,” they wrote.

Gains Seen

Leucadia bought a then-13 percent common-equity stake in
Harbinger Group from Falcone’s funds in September, paying $8.50
a share, 16 percent below the closing price the day the sale was
announced. Leucadia held 18.63 million common shares at the end
of December, according to a regulatory filing last month.

Falcone is CEO of Harbinger Group, which has majority
stakes in insurer Fidelity & Guaranty Life and Spectrum Brands
Holdings Inc., the maker of Rayovac batteries and George Foreman
grills. The New York-based firm also controls a middle-market
lender.

Falcone, who became a billionaire by betting against the
U.S. housing market in 2006, was accused by the SEC of
improperly borrowing money from his funds to pay personal taxes.
He also admitted to giving preferential treatment to some
clients when returning their money.

After the SEC agreement, which included $18 million in
sanctions against Falcone and his firm, the executive was banned
by New York regulators from being an officer or director of
Fidelity & Guaranty Life for seven years.